Chapter 14: Collecting and Realising Assets

Question 1

What should the PRs’ priority be?

Answer 1

To realise sufficient funds to pay off any loan taken out by the PRs to cover the estate IHT liability.

Unsecured debts owed to the deceased should be collected as soon as possible, taking legal action if required.

Question 2

When may PRs have an action to recover damages?

Answer 2

May have action to recover damages on behalf of dependants of the deceased if the deceased was killed by a wrongful act.

Any damages recovered don’t form part of the estate.

Question 3

What should be used when dealing with institutions over the estate?

Answer 3

Official office copies of the grant should be used.

Photocopies aren’t acceptable evidence.

Question 4

What should be considering when deciding to sell assets?

Answer 4

Reference should be made to the will + beneficiaries’ wishes.

E..g, any property specifically gifted in the will shouldn’t be sold unless other assets have been exhausted.

Beneficiary may have expressed a wish to receive a particular asset to satisfy a pecuniary legacy or as their share of the residue.

Tax implications of disposals are another consideration.

Question 5

What is a solvent estate?

Answer 5

One where the reasonable funeral, testamentary, and administration expenses, debts, and other liabilities can be paid in full.

Question 6

How should a secured debt be discharged?

Answer 6

E.g., a mortgage on a property.

Should be discharged from the property against which it is secured - subject to the testator showing any contrary intention in the will.

Question 7

How should unsecured creditors be paid?

Answer 7

From the estate’s assets in the following order:

1. Property undisposed of by the will (e.g., in a partial intestacy), and
2. Residue

Question 8

If debts cannot be paid from the will (e.g., if the will provides that debts shall not be paid from the residue), what is the order from which debts will be paid?

Answer 8

1. Property specifically given for the payment of debts (if any)
2. Property specifically charged with the payment of debts - occurs when the testator has directed what happens to any surplus after using such assets,
3. Pecuniary legacy fund - unless testator has specified others (abate proportionately)
4. Property specifically devised or bequeathed, rateably according to the property’s value.

Question 9

What is the doctrine of ‘marshalling’?

Answer 9

Can be invoked by a disappointed beneficiary (one whose legacy is used by the PRs to pay a debt when the legacy is within a category which is not, as between the beneficiaries, liable to the burden of that debt).

The disappointed beneficiary will be compensated from the residue for their loss.

Question 10

What does a gift of property ‘free of mortgage’ mean?

Answer 10

The mortgage on the property must be paid out of the reissue to the extent of the residue.

Question 11

In an insolvent estate, what do PRs need to do to protect themselves from claims by unsecured creditors?

Answer 11

They need to pay the unsecured creditors in the correct order.

If they do so, the PRs will be protected from a claim, provided they have acted in good faith + not preferred one creditor over another in the same category.

Question 12

What order must unsecured creditors be paid in the case of an insolvent estate?

Answer 12

1. Reasonable funeral and administration expenses,
2. Preferred debts
3. Ordinary debts
4. Interest on preferred and ordinary debts, and
5. Deferred debts

Question 13

What are preferred debts?

Answer 13

Wages and salaries of the deceased’s employees in the 4 months prior to death, up to a maximum of £800 each

Question 14

What are deferred debts?

Answer 14

Loans from the deceased’s spouse

Question 15

How do creditors rank within a category?

Answer 15

Equally - they abate proportionately

Question 16

What happens if a PR pays a category of debt, knowing that there are higher ranking debts?

Answer 16

The payment is an implied warranty that there are sufficient assets to meet all the higher level debts of which they have notice.

If there aren’t sufficient assets, the PRs are personally liable.

Question 17

When will PRs not be liable for paying an inferior debt first?

Answer 17

If they paid an inferior debt without notice of a debt in a higher category, provided they didn’t do so with undue haste.

Question 18

What is the exception to PRs not preferring 1 creditor over another in the same category?

Answer 18

They are protected if payment to a creditor in one class was made in full before payment to others, and the estate later turns out to be insolvent.

To be protected from liability, the PRs must have been acting in good faith at the time + with no reason to believe the estate was insolvent.